Korean Air, Hahn & Company closer to finalizing $845 mn in-flight meal service deal

Korean Air Lines Co. and local private equity firm Hahn & Company may sign the share purchase agreement (SPA) for the flag carrier’s in-flight meal service unit as early as this week or next week at the latest, according to industry sources on August 19.

The price is still being negotiated, but it could fetch as much as 1 trillion won ($845 million), according to the investment banking industry.

In July, the cash-strapped airline agreed to sell its in-flight meal service unit to the country’s second-largest private equity firm as part of its self-rescue measures, Korean Investors reported.

 



 

Since then, the private equity firm has conducted on-site due diligence for Korean Air’s in-flight meal facilities at both Gimpo and Incheon, as well as on the airline's overall in-flight operations, including duty free.  The two parties have also agreed on pending matters including contracts with foreign airlines and facility lease agreements.

Currently, the two parties are hashing out the exercise price for Korean Air’s priority rights of purchase regarding the in-flight meal service headquarters. Once the transaction details are finalized, they will move on to negotiate shareholder agreements.

The deal may be completed in September if the SPA wraps up soon.

A speedy deal is good news for the distressed airline reeling from the effects of the global coronavirus. To sustain its operations, Korean Air has had to employ self-rescue measures such as suspending the majority of its international flights, placing over 70% of its employees on paid or unpaid leave, and reviewing potential assets for sale.

Amid such financial struggles, the country’s flag carrier posted surplus during the second quarter of the year thanks to increased cargo sales. In August, Korean Air announced Q2 operating profit of 148.5 billion won despite a 44% drop in sales from a year earlier. The airline’s profit was attributed to the soaring 95% year-on-revenue growth in cargo sales to 1.23 trillion won.

Alongside the latest surplus, the 1 trillion won in-flight meal service deal would represent a significant chunk of the over 4 trillion won needed to resolve the company's liquidity problems -- including government aid of 2.2 trillion won and 1.15 trillion won from issuing new shares.

Meanwhile, the Seoul Metropolitan Government (SMG) has offered to purchase 37,000 square meters of undeveloped land in central Seoul (Songhyeon-dong) held by Korean Air. While specific figures have not been disclosed, the proposed price is understood to be higher than the 467 billion won set by the flag carrier. The SMG also said it would consider a lump-sum payment by year-end, instead of the planned installments by 2022.

Write to Ri-Ahn Kim at knra@hankyung.com